Sunday, March 8, 2009

2nd stimulus package will be most effective in the rakyat's hands

Not even 10% of the RM7bn 1st stimulus package announced in November last year has been delivered. The Second Finance Minister confessed in Parliament that just RM568m, 8%, of the total had been spent as of February.

Even as we wonder how, where and when the balance of that first RM7bn will be spent, the BN is set to present in Parliament this Tuesday its 2nd stimulus package.

I expect the usual slew of various projects totalling billions and talk of improving government efficiency, with little to show after the media ink has dried on the subsequent approving comments by sycophants.

Given the slow pace and leakages in BN government implementation that we have grown accustomed to, there will be far quicker and greater impact if the funds are put directly into the rakyat’s hands instead. Here are two proposals from me:

1. Support payments to the poorest households. I suggest RM1,000 per month be paid to the 30% of EPF contributors with the lowest incomes. 30% of 5.4m active contributors = 1.6m workers * RM12,000 for one year = RM19.5bn. The multiplier effect from this will be substantial as these contributors will be spending primarily on local products and services, helping to support the domestic economy.

2. Banks have been cutting credit lines, exacerbating the downturn as even good businesses have to curtail activities due to the lack of financing. The government can help with a Special Risk-sharing Initiative (SRI) similar to that proposed by Singapore in its budget. Under this SRI, the government will share the risk of these loans should they turn sour. Banks will still be responsible for assessing credit and sourcing the customers, but if the government agrees to share 50% of the risk of these loans, banks will be more willing to grant credit. SMEs account for c. RM130bn of total loans. Total exposure would perhaps be RM16bn, assuming the government takes 25% of the total and in the unlikely event they all go sour. But in the meantime, this may just be the tonic to alleviate the credit crunch faced by Malaysian SMEs.

Financing the spending is where we run into difficulties, and which is why we have the headline number being bandied about now sharply reduced to just RM10bn, instead of the RM30bn or so being touted earlier. The profligate spending by the BN government during the years of plenty is haunting us now. Unlike, say, the governments of Singapore and Australia which ran budget surpluses during those years, which they are now using to mitigate the recession, the BN government has been incurring deficits and growing our national debt.

The prospect of larger deficits has prompted ratings agencies to cut their credit ratings for Malaysia, and is a part of the reason for the slide in our ringgit's value. So, as a first step, instead of just spending more money, we must look to at least 10% of savings from current government procurement. The 2008 government budget called for c. RM190bn of total spending. Save just 10%, for example from better procurement practices without using consultants and agents, and we would have RM19bn – enough for the EPF support payments!

4 comments:

Anonymous said...

Most of the poorest households probably do not have EPF accounts. Singapore tried this but I am not certain how effective it is.

The government may wish to consider setting up community service centres. Reach out to the households at risk and help them to get discounts for their power and water bills. This would have a direct impact on the poorest households. This solution would rely heavily on an efficient community set-up.
Cyril

Hasbullah Pit said...

I suggest RM1,000 per month be paid to the 30% of EPF contributors with the lowest incomes. 30% of 5.4m active contributors = 1.6m workers * RM12,000 for one year = RM19.5bn.


How about RM 1k, to be paid for those who are suddently didnt contribute to EPF.

(Diberhentikan kerja)

Chi-Chang said...

Dear Cyril,

Your are right, the poorest households probably do not have EPF accounts.

But as you put it, reaching out to them will "rely heavily on an efficient community set up".

This, we do not have, and I definitely do not want the BN government to have yet another excuse to set up yet more committees and turn this into another form of patronage to buy support. (Did you follow the case in Penang, where certain govt officers refused to accept aid forms submitted by the poor, unless they came through MCA channels?)

That's why I suggested the EPF as the best option available of limited choices. Neutral, and the statutory body with perhaps the best operations in Malaysia, based on my personal experience.

Thanks and keep reading!

Chi-Chang

Collateral Damage said...

Just for info, the govt run Credit Guarantee Corp (CGC) does guarantee loans given out by banks if one applies for loans through CGC. But of course, CGC works at a glacial pace and has very stringent criterias for guaranteeing a loan so it is not much use at this point in time to companies who may require financing ASAP.